The Botswana Insurance Fund Management (Bifm), the biggest asset management firm,┬áwarned Wednesday that the current economic crisis would take longer than expected and will be a huge drain on the┬ácountry’s┬áforeign exchange reserves.
Writing in┬á the quarterly Bifm Economic┬á Review, the head of┬á Bifm’s Investment Committee, Keith Jefferies said┬áthat with the depressed┬á mineral sector prices in the global market the “likelihood is that Botswana’s diamonds will face market weaknessÔÇöresulting in lower prices and reduced volumes ÔÇô not just in the short term but into the medium term”.
“While the impact on export is broad based, the main concern is what consequences will be of a down-turn┬áin the demands for diamonds. This is because the diamonds remain Botswana’s largest export…,” he said.
The move┬á comes at a time when the┬á general mineral export sector has suffered due to┬á reduced export quantities in the┬á fourth quarter of last year as prices received from copper and nickel have fallen by between 70 to 80 percent from their peak.
At the same time, the diamond industry, which is the pillar of Botswana’s economy, came under pressure because of the credit crunch as┬áthe jewellery market and the cutting and polishing┬áindustries went into a slump, leading to┬ámining companies having to stockpile some of their produce and having to put some of their employees on unpaid leave, such as Debswana did.
“The result was the global sales of rough diamonds collapsed in the fourth quarter of 2008, and Botswana’s┬ádiamond exports fell to virtually zero.
“This situation is likely to be temporary; diamond sales will resume once stock levels have fallen. What is unclear, however, is at what level sales will resume, but with reduced credit┬áavailability, lower retail demand and de-stocking in the diamond pipeline, exports will undoubtedly be lower┬áthan in recent years, and in 2009, exports are likely to be particularly weak,” Jefferies said in his report.
Jefferies said the general economic climate will depend on the┬áUSA and other developed countries. However, he warned that┬áthe upturn in those countries will be slow and weak this year with stabilization likely to┬ácome either in 2010 or 2011.
“Diamond export will eventually resume, but are unlikely to┬áreturn to pre-crisis levels in the near future. While forecasts are still hedged with great deal of uncertainty, we estimate that taking account of lower prices and reduced exports volumes, diamond earnings will fall significantly, by one-third to oneÔÇôhalf in 2009/10.
“Furthermore, we estimate that it will take five years for diamond exports to fully recover. Lower diamond exports will be compounded by the declines in exports like copper and nickel,” he added. “The immediate impact of the halting of┬ádiamond exports is that approximately P 1.5 billion to P 2 billion┬áhas to be drawn from the foreign exchange reserves each month to maintain import levels.”